Investment rose from from USD 30 billion in 2004 to USD 38 billion in 2005. A REN21 report estimates that at least 85 renewable energy companies or divisions have market valuations greater than USD 40 million, up from 60 companies or divisions in 2004. The estimated total market valuation of companies in this category is USD 50 billion, double the 2004 estimate, as several high-profile initial public offerings have recently taken place. The solar PV industry invested record amounts in new plant and equipment (about USD 6 billion), as did the biofuels industry (more than USD 1 billion).

In the last year there were many new policies adopted to support renewable energy, and several more were extended, revised, or discussed. Not only were the EU and US active, but more than 16 developing countries as well, including Brazil, China, Egypt, India, Mexico, Thailand, and Uganda.

A number of countries dramatically stepped up targets and mandates for biofuels – ethanol and biodiesel mixed with conventional fuels. The number of countries with “feed-in” policies for the purchase of power from renewable sources increased to 41, and the number of countries with future targets for the share of energy from renewables increased to at least 49.

India has become the world’s third most attractive market for renewable energy investment, displacing Germany in the top three, according to Ernst & Young. The UK has also pushed ahead of Germany to fourth place, following the publication of the government’s energy review this month.

“India’s rise to third overall … has been precipitated by excellent national and regional government support for both foreign and local investment in renewable technologies,” the consultancy says in its latest quarterly Renewable Energy Country Attractiveness Index. “Consequently, rapid growth is expected to continue in this market.”

The report notes that installed renewables capacity in India – currently standing at 8GW – is now expected to double every five years, and is forecast to reach 20GW by 2012, twice the government’s target. Full article in Environmental Finance Magazine.

Ashok Toshniwal has provided some valuable comments on the Renewables Market in India (below):
The Hector Molina Sugar Cane Biomass Project provides an interesting example of how project finance risks can be reduced to allow early penetration into renewables markets.

The number of project finance deals in the Remewable Energy sector is growing more rapidly than ever, Richard Stuebi explains why:

Structured energy project finance has been relatively commonplace in supporting the development of new energy facilities over the past 20 years. Central to the concept of project finance is disaggregating risk and parceling it out to specific parties who can accept that risk. As a result, project finance works great for the 30th or 40th deal of the exact same type, but it is typically very hard to use project finance approaches for funding the development of facilities using innovative technologies or commercial arrangements.

Accordingly, project finance has historically been somewhat problematic for renewable energy interests to procure. Financiers central to structuring the deal were either unfamiliar or uncomfortable with the risks posed by renewable energy technologies, most of which have not been in commercial operation for decades. This lack of project finance capacity has thus been a major barrier to the widespread deployment of otherwise viable renewable energy technologies in commercial-scale projects.

The good news is that project finance capacity is increasingly opening its doors to renewable energy opportunities. Financial professionals with deep knowledge of the true abilities of renewable energy are finally beginning to amass capital to deploy in sponsoring the development of renewable energy projects.

FOURTEEN of the world’s largest investment companies today launch a ground-breaking report for the United Nations Environment Programme Financial Initiative (UNEP FI). The report “Show Me The Money” confirms the growing importance of environmental, social and governance (ESG) concerns to the global investment industry.

The report states that, there is a growing worldwide understanding of the pivotal role the investment community and capital market actors have to play in addressing critical ESG challenges. At the same time, the mainstream investment community is waking to the burgeoning opportunities associated with sustainability promoting companies, technologies and investment funds. From clean-tech, to renewables and ecosystem services, the growth industries of the 21st century are emerging at an accelerated pace.

The Key Findings are:

ESG issues are material – there is robust evidence that ESG issues affect shareholder value in both the short and long term.

The impact of ESG issues on share price can be valued and quantified.

Key material ESG issues are becoming apparent, and their importance can vary between sectors.

“Show Me The Money” draws on work by a group of leading financial institutions* and covers the impact of qualitative and new risk issues on company value. Industries covered include the auto-industry, aerospace and defense, the media, and the food and beverage industries. UNEP FI is a unique public-private partnership between UNEP and more than 160 banks, insurers and asset managers.

[KATHMANDU] A project that is bringing clean, efficient energy to rural communities in Nepal received a major boost this month in the form of a deal that rewards it for reducing the country’s greenhouse gas emissions.

The deal is Nepal’s first under the Kyoto Protocol’s Clean Development Mechanism, which allows industrialised nations to offset some of their emissions by investing in clean energy projects in developing nations.

The Nepal Biogas Project promotes the use of underground ‘digesters’ that use bacteria to generate methane gas from cattle dung (see Small is bountiful in Nepal’s energy sector). Using methane instead of wood or kerosene to power stoves or lamps can reduce a household’s greenhouse gas emissions by five tonnes a year.

Under an agreement signed on 3 May, the World Bank’s Community Development Carbon Fund will pay Nepal to reduce its emissions by one million tonnes over the next seven years by increasing the use of biogas units.

Khagendra Nath Khanal, senior quality control officer of Biogas Sector Partnership Nepal, the nongovernmental organisation implementing the project, says the new deal will bring the project US$7 per tonne of avoided emissions.

Banks are increasingly being asked by NGos and shareholders to ensure they have adequate investment policies in place and to ensure their investments are sustainable. This includes directing a suitable proportion of their investment towards solutions for climate change. It is good to see big international banks setting the standard and acting as a driving force for improvements across the market.

A report comparing the nature of Dutch bank investments has claimed that the climate policies of the big Dutch banks are insufficient and lag behind those of big international banks such as the Bank of America and Citigroup: ‘Investing in Climate Change: the Role of Dutch Banks and the Climate Performance Index. Friends of the Earth Netherlands (Milieudefensie) today presented these results during the annual meeting of the branch organisation for Dutch banks, NVB and called on all Dutch banks to improve their climate policies.

Many international banks recognise the role they play in causing climate change. They accept their responsibility by investing billions in the solution. Carbon dioxide (CO2) emissions are a criteria for approving investments and loans at the Bank of America, J.P. Morgan Chase and Citigroup. The Bank of America has a seven percent reduction target for the CO2 emissions of its investments in the energy sector.

The research for ‘Investing in Climate Change: the Role of Dutch Banks’, was conducted by Dutch Sustainability Research. The report and the Friends of the Earth Netherlands’ Climate Performance Index suggests that Dutch banks are failing in the area of climate policies. They claim that they lack concrete targets to reduce the greenhouse gas emissions of their investments.

The International Finance Corporation (IFC) allocated more than 14% of its total investments in fiscal 2005 to sustainable energy projects.

For the first time the IFC – the private sector arm of the World Bank Group – has identified projects within its mainstream portfolio that have a sustainable energy component: it found 21 projects, representing a $705.1 million investment. Meanwhile, investments in pure sustainable energy projects reached $220.9 million.

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Risk in Project Finance

This site considers current news, key issues, articles, and new regulatory and guidance information from different viewpoints, including banks, legal firms, project sponsors, consultancies and NGOs in order to provide a wide spectrum of opinions.
In order to demonstrate why risk management so important, the site provides information and conflicting opinions from those who support and oppose the finance of key project. It also includes an evaluation of the different views on the various management techniques.

Financial Institutions

The various approaches and guidelines have provided invaluable risk management tools for Financial Institutions, and while there will always be critics of some of the finer details, the overall benefits have been overwhelming and far reaching. The banks have shown a highly impressive degree of co-operation and innovation in their approach to environmental and social risk management.